By JLP | July 16, 2010
My post a few days ago about Dave Ramsey’s “Drive Free. Retire Rich.” program received this response from Chuck:
Here is a list of US Stock Mutual Funds from Morningstar Financial with at least a 10 Year track record making annualized returns of 12% or greater. I don’t ever recall DR stating leave your money in the same fund for 40 years and play dead. But maybe it was on a show I didn’t hear.
CGMRX CGM Realty 17.64
SSGRX BlackRock Energy & Resources Inv A 17.17
CGMFX CGM Focus 16.57
PSPFX U.S. Global Investors Global Res 16.57
LEXMX ING Global Natural Resources A 15.76
PRGNX Prudential Jennison Natural Resources B 15.59
RSNRX RS Global Natural Resources A 14.87
GHAAX Van Eck Global Hard Assets A 13.96
VGENX Vanguard Energy 13.51
YAFFX Yacktman Focused 13.10
RSPFX RS Partners A 13.00
ICENX ICON Energy 12.90
FAIRX Fairholme 12.74
IGNAX Ivy Global Natural Resources A 12.49
BURKX Burnham Financial Services A 12.48
FSDPX Fidelity Select Materials 12.48
YACKX Yacktman 12.43
LMVYX Lord Abbett Micro Cap Value I 12.39
HWSIX Hotchkis and Wiley Small Cap Value I 12.22
There’s just one problem with this list…
These are all HISTORIC returns. Ten years ago, would a person have picked these funds, knowing that they would return north of 12%? I think the answer to that is a resounding, “No.”
Also, take a look at that list. Eight of those funds are in natural resources, which would have been a defensive sector ten years ago. Take a look at this Morningstar graph for Van Eck Global Hard Assets:
Notice how the fund didn’t really take off until nearly halfway through 2003. The point? Well, no one would have seen the bull market in commodities coming. Therefore, no one would have had the foresight to invest their car money (referring to the original post) in such a fund.
Now, there are a couple of funds in the list that are general stock market funds. Still, it would have been difficult to pick such funds back in 2000. The Fairholme fund was barely a year old back in 2000.
The bottom line is that although there are funds that returned 12% in the past, it would have been hard to find them 10-years ago. Dave Ramsey’s reckless to use such a hypothetical rate of return with his listeners.